Download Chapter 14 Review Questions

Chapter 14 Review Questions
Questions:
1. As it relates to Federal Reserve activities, the acronym FOMC describes the:
A) Federal Open Market Committee.
B) Federal Options Market Committee.
C) Federal Organization for Monetary Control.
D) Federal Organization for Money Creation.
2. In the U.S. economy the money supply is controlled by the:
A) U.S. Treasury.
B) Federal Reserve System.
C) Senate Committee on Banking and Finance.
D) Congress.
3. As it relates to Federal Reserve activities, the acronym FOMC describes the:
A) Federal Open Market Committee.
B) Federal Options Market Committee.
C) Federal Organization for Monetary Control.
D) Federal Organization for Money Creation.
4. Which of the following is the basic economic policy function of the Federal Reserve Banks?
A) holding the deposits or reserves of commercial banks
B) acting as fiscal agents for the Federal government
C) controlling the supply of money
D) the collection or clearing of checks among commercial banks
5. The multiple by which the commercial banking system can expand the supply of money is equal
to the reciprocal of:
A) the MPS.
B) its actual reserves.
C) its excess reserves.
D) the reserve ratio.
6. If the reserve ratio is 15 percent and commercial bankers decide to hold additional excess
reserves equal to 5 percent of any newly acquired checkable deposits, then the relevant monetary
multiplier for the banking system will be:
A) 31/2.
B) 4.
C) 5.
D) 10.
7. Which of the following is a tool of monetary policy?
A) open market operations
B) changes in banking laws
C) changes in tax rates
D) changes in government spending
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Chapter 14 Review Questions
8. The Fed can change the money supply by:
A) changing bank reserves through the sale or purchase of government securities.
B) changing the quantities of required and excess reserves by altering the legal reserve ratio.
C) changing the discount rate so as to encourage or discourage commercial banks in borrowing
from the central banks.
D) doing all of the above.
9. Suppose the Federal Reserve Banks sell $2 billion of government bonds to the public which pays
for them by drawing checks. As a result, commercial bank reserves will:
A) increase by $10 billion.
B) remain unchanged.
C) decrease by $2 billion.
D) increase by $2 billion.
10. If the Fed were to increase the legal reserve ratio, we would expect:
A) lower interest rates, an expanded GDP, and depreciation of the dollar.
B) lower interest rates, an expanded GDP, and appreciation of the dollar.
C) higher interest rates, a contracted GDP, and appreciation of the dollar.
D) higher interest rates, a contracted GDP, and depreciation of the dollar.
11. An increase in the reserve ratio:
A) increases the size of the spending income multiplier.
B) decreases the size of the spending income multiplier.
C) increases the size of the monetary multiplier.
D) decreases the size of the monetary multiplier.
12. The interest rate at which the Federal Reserve Banks lend to commercial banks is called the:
A) prime rate.
B) short-term rate.
C) discount rate.
D) Federal funds rate.
13. Suppose that, for every 1-percentage point decline in the discount rate, commercial banks
collectively borrow an additional $2 billion from Federal Reserve banks. Also assume that
reserve ratio is 10 percent. If the Fed lowers the discount rate from 4.0 percent to 3.5 percent,
bank reserves will:
A) increase by $1 billion and the money supply will increase by $5 billion.
B) decline by $1 billion and the money supply will decline by $10 billion.
C) increase by $1 billion and the money supply will increase by $10 billion.
D) increase by $10 billion and the money supply will increase by $100 billion.
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Chapter 14 Review Questions
Answers:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
A
B
A
C
D
C
A
D
C
C
D
C
C
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